The year's most powerful typhoon was grinding closer to Hong Kong on Sunday, forcing hundreds of flights to be cancelled and shutting down shipping after pummelling island communities in the Philippines and Taiwan with heavy rains and fierce winds.

Typhoon Usagi was expected to make landfall just north of Hong Kong late on Sunday or early on Monday, with forecasters warning that it posed a severe threat to the southern Chinese city.

Usagi – Japanese for rabbit – was classified as a severe typhoon, packing sustained winds of 109mph (175km/h), with gusts of up to 132mph.

The storm was downgraded from a super typhoon on Saturday – when its sustained winds fell below 150mph – as it passed through the Luzon strait separating the Philippines and Taiwan, probably sparing residents in both places from the most destructive winds near its eye.

In the Philippines, Usagi left at least two people dead and two others missing, while in Taiwan nine people were hurt by falling trees on Kinmen island off China's coast.

By late Sunday afternoon, the typhoon was about 130 miles east of Hong Kong, moving west at 12mph, the Hong Kong Observatory said. It was expected to skirt Hong Kong about 62 miles to the north between Sunday night and Monday morning.

The observatory said that by 7pm local time it would raise the No8 storm warning signal, the third highest on a five-point scale, up from the current No 3 standby signal.

The typhoon wreaked havoc on flight schedules at airports in Hong Kong, nearby Macau and mainland China, upsetting travel plans for many passengers who were returning home at the end of the three-day, mid-autumn festival long weekend.

Hong Kong international airport said 353 arriving and departing flights were cancelled and another 67 delayed.

Two of Hong Kong's biggest airlines, Cathay Pacific Airways and Dragonair, said flights to and from the city's airport would be cancelled from 6pm on Sunday and resume on Monday if conditions permitted.

The Guangdong provincial government urged people to prepare for the storm, which was forecast to slam into the manufacturing heartland of the Pearl river delta as it skirted Hong Kong.

Guangdong authorities asked more than 44,000 fishing boats to return to port, while Fujian province evacuated thousands of people from low-lying coastal areas, Xinhua said.

In Taiwan, more than 3,300 people were evacuated from flood-prone areas and mountainous regions. The storm also caused a landslide that buried a rail line on Taiwan's south-east coast, but rail services were restored by Sunday morning.

Another landslide late on Saturday at a village in the south-east sent mud and rocks crashing through the ground floor of a resort spa, forcing the evacuation of frightened guests. The Chihben river breached its levees upriver, turning the town's main street into a rock-strewn stream, flooding homes and damaging vehicles.

In the Philippines, a 50-year-old man and a 20-year-old woman drowned when a passenger boat capsized in rough waters off north-eastern Aurora province, the Office of Civil Defence said on Saturday. Two other people were missing in the incident, while the remaining nine passengers and crew were rescued.